US lawmakers scrutinize role of ethanol credits in gasoline price spike

The price of credits used by refiners to meet federal ethanol blending requirements has risen more than 1,000% in recent weeks. The heightened volatility in this normally sleepy market has raised concerns that it is a factor in the recent rise in the price of gasoline.

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By DAN STRUMPF

NEW YORK--Two Congressional committees are looking into whether
a price spike in an obscure corner of the biofuels market is behind the recent
run-up in the cost of gasoline.

The price of credits used by refiners to meet federal
ethanol blending requirements has risen more than 1,000% in
recent weeks. The heightened volatility in this normally sleepy
market has raised concerns that it is a factor in the recent
rise in the price of gasoline.

Retail gasoline prices averaged $3.706 per gallon
nationally Wednesday, according to auto club AAA, an increase
of more than 41 cents, or 12.6%, since the start of the year.
US crude oil futures have risen less than 1% during the same
period.

Earlier this week, Sen. Ron Wyden (D. Ore.), chairman of the
Senate Energy and Natural Resources Committee, sent a letter to
the Energy Information Administration (EIA) requesting
information about gasoline prices, including data on oil
production, exports and transportation infrastructure. The
committee plans to hold a hearing on gasoline this spring.

The committee is also looking into the recent increase in
the price of ethanol credits, spokesman Keith Chu
said.

Separately, the Republican-controlled House Energy and
Commerce Committee has taken notice of the recent surge in
ethanol credit prices, a spokeswoman said. The committee plans
to hold hearings later this year on the renewable fuel mandates
and intends to review whether the mandates are affecting
gasoline prices, she said.

Neither committee has launched a formal investigation.

The Environmental Protection Agency
(EPA) mandates that a certain amount of ethanol be blended into the US
gasoline supply each year. Refiners who don't meet the
requirement can buy credits called Renewable Identification
Numbers, or RINs, as a substitute.

Last year, the U.S. consumed about 133 billion gallons of
gasoline, the lowest level in 12 years. As most retail gasoline
sold contains 10% ethanol, roughly 13.3 billion gallons of
ethanol was blended into gasoline, just above last year's
approximately 13.2 billion-gallon requirement.

But the EPA mandate is set to rise this year, even as demand
for motor fuel declines. The latest proposal, if approved,
could force refiners and fuel importers to use more than 14
billion gallons of ethanol.

Refiners are concerned that they won't be able to sell
enough ethanol to keep up with the mandates. Automakers say
most vehicles can't handle more than 10% ethanol, and the
market for higher blends, such as 85%, is relatively small.

That has caused the price of ethanol credits to rise
sharply, as refiners worry they won't be able to meet the
mandate. RINs representing a gallon of ethanol traded for under
10 cents at the start of the year. Prices climbed rapidly in
recent weeks, soaring to more than $1 on Monday. On Tuesday,
the price dropped to under 80 cents a gallon.

"There's a worry of there not being enough RINs to meet the
mandate," this year or in 2014, said Mike Garcia, an ethanol broker at Atlas Commodities
LLC in Houston. "That's caused a flurry of these refineries to
go out and buy them."

Not everyone thinks that the run up in the price of credits
is spilling over into gasoline prices. Gene Gebolys, CEO of
World Energy, a Boston-based trader of biodiesel, said the
relationship between the two markets has been "overblown."

"Yes, the RIN values are going up and yes, that's a
contributing factor to the overall price of gasoline...but it's
a bit simplistic to say that if the RINs go up, they
immediately translate to a one-for-one increase in gasoline
prices," he said.

But some refiners and traders warn that the volatility could
be spilling over into the price of gasoline. If the credits get
too expensive, refiners may opt to curb imports or export more
gasoline, they said.

"The most likely scenario is that costs would be passed onto
consumers," said Bill Day, spokesman for refiner Valero Energy
Corp.

Dow Jones Newswires

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